Public Bill Committee

[Mr Peter Bone in the Chair]

(Except clauses 1, 4, 8, 189 and 209, schedules 1, 23, and 33 and certain new clauses and new schedules) - Clause 2  - Basic rate limit for 2012-13

Amendment proposed (this day): 8, in clause2,page2, line27,at end add—
‘(3) The Chancellor of the Exchequer shall review the impact of the setting of the basic rate limit on increasing the number of higher rate income tax payers and place a copy of the review in the Library of the House of Commons.’—(Owen Smith.)

Question again proposed, That the amendment be made.

Peter Bone: I remind the Committee that with this we are discussing the following: Amendment 9, in clause2,page2,line27,at end add—
‘(3) The Chancellor of the Exchequer shall review the impact that setting the basic rate limit will have on average tax rates paid by total income and a copy of the report shall be placed in the House of Commons Library.’.
Clause stand part.
Before resuming our detailed scrutiny of the Bill, it might be helpful for hon. Members to know about the arrangement for tabling amendments. As a general rule, I and my fellow Chair do not intend to call starred amendments that have not been tabled with adequate notice. The required notice period in Public Bill Committees is three working days, so amendments should be tabled by the rise of the House on Monday for consideration on a Thursday, and by the rise of the House on Thursday for consideration on a Tuesday. I wish to say to new members of the Committee that any hon. Member can table an amendment and that the Clerks will be very helpful and give advice on such matters.
Before we adjourned, the Committee was considering amendment 8 to clause 2, and Mr Rees-Mogg was in mid-sentence.

Jacob Rees-Mogg: Backbone was, I think, what we were discussing. All on the Government side have backbone and the reason why we will vote against the amendment is that it would add bureaucracy, make little difference to the Bill and would essentially not be a useful addition. That is the backbone we share.

Owen Smith: No more backbone for a little while. Contrary to the opinion of the hon. Gentleman, we do not believe that the amendment is meaningless. We do not believe that it would add needless bureaucracy to the Bill. We believe that it would place an important duty on the Secretary of State to take seriously the perhaps unintended but certain consequences of the changes being made in under the clause. I say that in light of the Exchequer Secretary’s repeated use of the phrase that we have heard throughout discussions that there will be “no new higher rate taxpayers” as a result of the measures in the Budget. I say again to him that that is true as long as the Government choose to ignore fiscal drag, as they chose not to when in opposition.
I thought it very interesting, indeed enlightening, that the Minister, when he was given a handy hint by his ever-helpful colleagues from the Treasury, told the Committee that in the Government’s view there would be 900,000 extra top rate taxpayers by the end of 2013-14. I point out to him that that is, in truth, a flat contradiction; 4 million is the figure that he used and that is 900,000 greater than the figure of 3.1 million that the Government use as the baseline from which we move at the last election. So that is 900,000 extra top rate taxpayers.
Of course, the reason why that is interesting is that elsewhere in the Budget documents—on page A7 of the overview of tax document—the only number used is 300,000. That is the number that we are told will be the number of additional top rate taxpayers that will be created as a result of the reduction in 2013-14 of the top rate of tax by £2,125. That is effectively a concession by the Minister that fiscal drag exists.
The gap—the delta—between the figure of 300,000 that is conceded in the documents and the figure of 900,000 in effect that he spoke about in his remarks is the 600,000 who will be dragged into the top rate of tax. That is not an academic point, because even if the impact in this year is neutral for taxpayers as a result of the off-set, in successive years it is not neutral. In successive years, more and more people will go into that top rate of tax. In particular, next year an additional number of people will go into the top rate; it is now 300,000 people, but it may be 900,000 people who will go into the top rate of tax.
There is another reason why it is not an academic point. My hon. Friend the Member for Bassetlaw is not in his place at the moment, but he made it plain earlier today that these are not statistics; these are individuals. They are not millionaires, polishing their Ferrari or otherwise. They are not people who are benefiting from the £40,000 tax cut that millionaires got in the Budget. In what I think is a piece of telling symmetry, they are people earning around £40,000 a year, not people getting a £40,000 tax bung from the Government as a result of being millionaires. Rather, they are simply earning around £40,000 a year. They are skilled manual workers, they are middle managers, they are teachers, they are train drivers. They are ordinary folk in all our communities who will be pushed into the top rate of tax, and they will be surprised that a Tory Government should be pushing all of them into the top rate of tax. I suspect people will be surprised.

Stephen Williams: Good afternoon, Mr Bone. The hon. Gentleman spoke at length this morning; it looks as if he is about to speak at length again this afternoon. I am not yet sure that I know what his position is. Is he against the provisions in the clause? He told us all about his views on clause 3, saying that he was not necessarily against the raising of the personal allowance. Is he against the compensation measure for raising the personal allowance that is in this clause?

Owen Smith: I have made it plain on several occasions that we are not against that provision. What we are against, of course, is the fact that the Government are not being fully honest with the British people or with us—the Opposition—about what the other unintended consequences of subsequent changes will be, in particular the unintended consequences of the big reduction in the basic rate level in subsequent years. That is not netted off with the personal allowance change; it is half the change. And top rate taxpayers will benefit by only a quarter.

David Gauke: On the subject of being honest with the British people, will the hon. Gentleman confirm that the plumbers, train drivers and people in the various other occupations that he listed—people who may be earning slightly above the higher rate threshold—will, in fact, be paying less income tax as a consequence of these measures as a whole?

Owen Smith: Some of them may be, but a whole bunch of others who are just the other side of that threshold—they are just south of it right now, but they will be pushed through it as a result of fiscal drag—will be paying more eventually. That is the reality.

David Gauke: Is the hon. Gentleman saying that those people earning just over the higher rate threshold, perhaps as a consequence of the changes to the basic rate limits that we are debating, will be paying more in income tax as a whole—not having a higher marginal rate but actually paying more in income tax as a consequence of the changes set out in the clause?

Owen Smith: I am saying that, as a result of the Government’s changes, the number of people who pay the higher rate of tax will increase from 3 million to 6 million. The Government ought to be concerned about that and want to keep an eye on the impact that it will have on real living standards and people’s ability to meet everyday costs, and for that reason they ought to accede to our simple and gentle amendment 9.
The Government have made a welcome stab at transparency about the average rate of tax paid by those in income brackets between £100,000 and £10 million. We have asked them to persist with that transparency and think about extending it right the way through the income scale. However, in light of their intransigence when faced with our request, we will be pressing the amendment to a vote.

Question put, That the amendment be made.

The Committee divided: Ayes 13, Noes 19.

Question accordingly negatived.

Amendment proposed: 9, in clause2,page2,line27,at end add—
‘(3) The Chancellor of the Exchequer shall review the impact that setting the basic rate limit will have on average tax rates paid by total income and a copy of the report shall be placed in the House of Commons Library.’.—(Owen Smith.)

Question put, That the amendment be made.

The Committee divided: Ayes 13, Noes 19.

Question accordingly negatived.

Clause 2 ordered to stand part of the Bill.

Clause 3  - Personal allowance for 2012-13 for those aged under 65

Owen Smith: I beg to move amendment 10, in clause3, page2,line33,at end add—
‘(3) The Chancellor of the Exchequer shall review the overall impact on families of this section compared with other measures the Government is introducing and place a copy of the review in the Library of the House of Commons.’.

Peter Bone: With this it will be convenient to discuss clause stand part.

Owen Smith: The clause increases the personal allowance from £7,475 in 2011-12 to £8,105 in 2012-13.
Why make the amendment? We in the Opposition are developing a theme: we are calling for transparency, and for the Government to make good on their oft-stated interest in greater transparency on tax legislation and the rates paid. The amendment is, again, a profoundly helpful and sincere attempt to help the Government to paint an honest and accurate picture of the overall impact of their policies, and to cut through the rhetoric of recent months on the hundreds of thousands—indeed millions—removed from taxation, as well as on the millions of others helped by the Government in this and preceding Budgets.
If we cut through that rhetoric, the reality is that the increase in personal allowances is far outweighed by the increases in VAT, by the cuts to tax credits, by the changes to child benefit rules and by the increased prices paid everywhere in the country, including for fuel. The benefits of the increase in the personal allowance are outweighed by not a small but a significant amount. That is not according to Labour party analysis; it is the common consensus among commentators and analysts of different political persuasions throughout the country, including the Institute for Fiscal Studies, which is well respected as a wholly independent commentator on all matters budgetary. It suggests, for example, that the average cost to the average family in Britain of the changes that I have just enumerated is £511, including the money that those families will get from the personal allowance changes. That is on top of the £450—again, this is calculated by the IFS—average cost to those average families of the increase in VAT introduced by the Government last year, which is still having an impact on people’s pockets. I want to expose the reality and help the Government focus on that reality. Most pensioners and most people on low incomes will not be helped at all by the personal allowance policies, as their incomes are too low to be affected in any way, shape or form by the shift in the personal allowance.
The amendment calls on the Government to provide a proper impact assessment of their policies so that we can see how they affect low and middle-income families, rather than simply misleadingly trumpeting the rise in the personal allowance as benefiting millions across the country. We ask the Government honestly to weigh the increased allowances against the increased cost to families of the cuts to tax credits, the increase in indirect taxation and the cuts to child benefits. Let me start, if I may, on a positive note.

Greg Hands: Start?

Owen Smith: I have barely moved on from my preamble. I am moving on to the introduction now, but there are several chapters still to come before we reach the conclusion.
Let me start with the positives and be fair to the Exchequer Secretary. The personal allowance is worth something to taxpayers in both the lower and upper tax brackets. We know precisely what it is worth, because Library staff conducted a study and placed a note in the Library for the benefit of all Members. It spells out absolutely clearly what the stipulated rise above normal indexation in the personal allowance is worth to individual taxpayers. It is £42 a year, or 81p a week. That is how much money people will get back as a result of the changes to personal allowances.
The cost to the Exchequer of conducting that exercise and providing that 81p a week is noted in the Budget as £1.04 billion in 2012-13. I mention that point only to amuse the cognoscenti in this Room who have no doubt been enjoying the dispute between the Government and the Opposition about the impact of the 50p rate and the extent to which it can be calculated using the taxable income elasticity point of 0.45, which the Exchequer Secretary has defended to the hilt in the House of Commons over the last couple of weeks. He defended it most vociferously again today, on the basis that it is ostensibly in line with the academic evidence. On a previous occasion, I pointed out to him that that was not the case.
I was struck by an amusing point when I looked at how the £1.04 billion cost of the change in the personal allowance had been calculated. In doing that calculation, colleagues in the Treasury had recourse to looking at what the appropriate taxable income elasticity might be, based on the best academic evidence, in order to calculate the behavioural change or offset that would occur when they introduced this change. Intriguingly, in this instance, they decided that the appropriate taxable income elasticity was the very one that they rejected when working out the 50p rate—the one that had been used by the previous Government. They chose 0.35 and not 0.45, which was cooked up in annexe A of the impact report. That is an interesting aside.

David Gauke: As the hon. Gentleman says, this may well be one for the cognoscenti. Is he seriously saying that he thinks that the behavioural response of the highest paid—those people who could choose to locate anywhere in the world, who would be most motivated to tax plan, and who would be most likely to control how many hours they worked—would be exactly the same as the behavioural response of all others across the spectrum of income? Is he seriously saying that he would expect there to be the same tax income elasticity for people on all earnings?

Owen Smith: No, I am not. Again, that was an interesting and telling intervention. I would give the Minister credit if it were written down anywhere in the documentation on the subject of the appropriate TIE in respect of the basic rate and personal allowance calculations that the justification for using a lower point estimate is that the relative degree of elasticity for people on lower earnings is measurable. However, in reality, it does not say that; this is simply a carry-over from the 0.35 used in earlier Budgets by the Labour Administration to calculate in a reasonable way the relative elasticities of income. That is why it is included. If the Minister can find evidence elsewhere that there was a reasoned decision taken that 0.45 would be used in respect of the 50p rate and 0.35 elsewhere, I would respectfully listen to that and respond to it. However, it is not evidenced in the documentation, probably because Ministers, as opposed to civil servants, looked for the higher point estimate, which would allow them to say that the behavioural impact in respect of the 50p rate would be that much greater, and the loss to the Exchequer would therefore be much lesser. That is why Her Majesty’s Revenue and Customs felt that it needed to comment more than 30 times on the uncertainty surrounding the point estimate in the document.

David Gauke: I just want to be clear about what the hon. Gentleman is saying. I think he is saying that the taxable income elasticity for low earners is 0.35. That was the case under the previous Labour Government and is the case now. I also think he is saying that he accepts that the taxable income elasticity will be higher for higher-paid workers.

Owen Smith: No, that is not what I said. I will be super-clear. What I said was that the 0.35 deployed to calculate the elasticity around the personal allowances is not justified in the Budget documentation as being anything other than the number used by the Treasury to calculate income elasticity. That is how it had been justified by the previous Labour Government when it was applied to people on the 50p rate. It is an absolutely fair, academic point to make that it is reasonable to assume that people earning more money would be more able to move, and that there would be greater elasticity in respect of their incomes. However, that is not what the Treasury says in its documentation.
That is an aside for the cognoscenti; I should get back to the core business. First, I should like to address the income distribution and the relative impact or benefit felt across the income distribution as a result of the personal allowance changes. In other words, how evenly is the benefit felt? The Government have made much of the fact that the changes will benefit basic and most higher rate taxpayers earning up to £100,000. That is, of course, true. That is how the provision impacts on taxpayers across the income spectrum, but that does not make it a progressive measure, because taken as a proportion of actual household incomes—[Interruption.] The Minister chuckles, but it is entirely legitimate to make the point that when one has a lesser amount of money, things have a proportionally greater impact. That is a perspective that most ordinary people would understand. The reality is that the benefit is largely felt in the middle and at the upper end of the income spectrum.
Again, Members need not rely on my words; they can rely on the Institute for Fiscal Studies. In a piece that looks at not only the change before us, but the change right up to the £10,000 personal allowance that the Liberal Democrats are so keen on, the IFS says:
“those with incomes between £8,105 and £10,000 would see their income tax liabilities fall from less than £379 to zero. A gain of £379 is of course larger as a percentage of income to a low-income individual than someone with a higher income, although it is important to remember that the poorest third of adults do not benefit at all because their incomes are already below the personal allowance. But if we examine the distributional impact at the family level (which is normal for this sort of analysis”—
and normally conducted by the Treasury—
“since we would expect at least some degree of income sharing within families) we get a different pattern to the one we might expect.”
That arises because of two-earner couples—a crucial point that has been missed in much of the discussion on personal allowance. The preponderance of two-earner couples in the middle and upper tiers of the income distribution means that they will benefit disproportionately as a result of the changes.

Grahame Morris: Will my hon. Friend comment on making these choices and applying priorities in different ways, particularly in relation to the tax cut for the people on the top rate, who earn more than £150,000? If that money—£3 billion over this Parliament—was applied to basic rate taxpayers, would there not be much quicker progress towards the £10,000 threshold advocated by Lib Dem Members?

Owen Smith: Of course there would. From our perspective, that would reflect a far finer set of priorities than those being pursued by the Government, with the support of the Liberal Democrats. Getting more people out of tax is a terrific idea, but we could get there a lot faster if we were not giving an enormous and outrageous tax break to people who do not need it.

David Gauke: I want to ensure that the shadow Minister is clear on this. This morning we heard an impassioned speech about how the Government’s policy was unfair on his constituents earning £40,000, £42,000 or £44,000. Now he is delivering an equally impassioned speech saying that the policy is unfair because it benefits those people disproportionately. Which is his final position?

Owen Smith: The two positions are in no way, shape or form contradictory. I hate to say this to the Minister, who I presume was responsible for the caravan tax, the pasty tax and various other aspects of this omnishambles of a Budget—those things would have crossed his desk—but the measure was, characteristically, not thought through by the Government. Quite clearly, there are unintended consequences to all measures. We are simply pointing out that in this instance it is not true that, as has so often been implied, the poorest people in our society and the most vulnerable will benefit from the changes. That is not borne out by the facts.

Ian Swales: The hon. Gentleman is now trying to paint the cut in the basic rate as something that benefits the well-off. Does he accept that someone on the minimum wage, working full time, will fully benefit from the cut in basic rate income tax, without any qualification?

Owen Smith: I think that is probably right. Someone working full time on minimum wage would probably benefit by the full amount; I do not dispute that, but neither do I expect the hon. Gentleman to dispute that, as I said earlier, a third of adults will not benefit from the measure, because they are part of the army of pensioners, low-paid workers or part-time workers who are not earning enough money to take them north of the personal allowance. He should remember that his party previously painted itself as the defender of the most vulnerable in society. It now finds its wagon hitched to a Tory Government who can never plausibly describe themselves as defenders of the most vulnerable.
 Ian Swales  rose—

Owen Smith: I am not giving way any more.
Returning to the IFS, couples who will benefit twice over will see their income tax liabilities fall twice by £379, or by £758 in total. The IFS says that
“the highest average cash gain occurs in the second-richest tenth of the income distribution”.
People in the second-richest decile will benefit most from the changes to the personal allowance. I suspect that that was not what the Liberals had in mind when they first mooted the policy.

Grahame Morris: My hon. Friend makes excellent points. On what he says about the top of the income distribution and the opportunity cost, there would be a far better benefit if the money that is going to top-rate taxpayers, which we estimate is around £3 billion over the lifetime of the Parliament, went to the people at the bottom end of the income distribution. Those people are not driving Ferraris or Maseratis; they would spend that money in the shops, boosting local economies. They would not be salting that money away in pension funds or in second homes overseas. Targeting the money at the bottom, rather than the top, would be of far more benefit to the economy.

Owen Smith: It would, because people at the bottom tend to spend a higher proportion of their disposable income on goods and services. We know that to be a fact. That is why the IFS points out that in the long run this policy may not be a terribly effective means of targeting the most vulnerable in society, or indeed an effective means of stimulating the economy—something that I would think the Government would be keen to do.
It is not only the IFS that suggests that the second-richest decile benefits most. Other commentators have come to the same conclusion. I turn to the views of the Resolution Foundation, which modelled who exactly will be the biggest winners and losers. It came to the same conclusion. It states that
“the biggest winners are those around the middle to upper end”
of the income distribution. It modelled that quite extensively in respect of three types of earners. It characterised those three types as: people who are benefit-reliant—there are far too many of them in our country, unfortunately, under all Governments—people who are low to middle income earners; and people who are in the highest income bracket.
The results are instructive. Among the people in the lowest third—the benefit-reliant—the proportional increase in annual household income as a result of the increase in the income tax personal allowance is 0.03%. For the middle third—those on low to middle incomes—the benefit is 0.19%. That is significantly greater, but no great shakes. At the top end of the income distribution—the highest income bracket—people benefit to the tune of 0.14% as a proportion of their annual income. That is because of how the measures are targeted, and the way in which the Government are seeking to misrepresent their policies as impacting on all income groups, particularly low earners, whereas in reality they are benefiting middle earners and low to middle earners.

Iain McKenzie: My hon. Friend emphasises the groups that will suffer badly from the tax proposals. One of the groups that is increasing—this is a phenomenon not only in Scotland, but across the country—is the group of people who have been moved from full-time to part-time work. They are finding that their hours do not allow them to meet the criteria that the Government have now set for benefits. That is an ever-increasing group.

Owen Smith: It is, and we saw the unemployment numbers last week. All Members should be pleased that there was a small reduction—30,000, I think—in the number of people out of work in this country. I welcome that. Any reduction in the number of people who are unemployed is to be absolutely welcomed. I hope that the number will not go back up next time, and I hope that the Government will not be too complacent about the prospect of it not doing exactly that. I urge the Government to look beyond the headline rate at the developing pattern of part-time working in Britain, because we are becoming a part-time working economy.
That is so important—I will come to this in a moment—because another offsetting change is being countenanced and introduced by the Government in respect of working tax credits. The rationale for that as a fair measure is that people should simply step out and get themselves an extra eight hours’ work each week. The numbers demonstrate how many people are in or seeking part-time work. Many of those people are women who, as result of the pressure on family households, are going out into the workplace for the first time since having children. All hon. Members are seeing that phenomenon in their constituencies. That is the reality for working people in this country.
The Resolution Foundation analysis, showing the impact on the middle deciles, is relevant in respect of the personal allowance, because these are the people for whom the impact is being offset to the maximum extent by the changes elsewhere. These are the very people on whom the changes to working family tax credits, child benefit and VAT on vital goods are having the maximum impact.
As for modelling that impact, I will list some of the changes, because there have been so many under this Government that all of us—even Opposition Members—who seek to keep track of the volume of damaging policies brought to bear on low and middle-income families in Britain by the Government begin to lose track of the number. Although the personal allowance measure will cost the Government £1.04 billion in 2012-13, the savings—if they can be described as such—from the cuts that I am describing net the Exchequer £2.5 billion in the same year.
What are those cuts? Some we do not even hear discussed in this place, let alone outside. The list is endless. The removal of the £545 family element of the child tax credit from middle-income families saves the Government £475 in 2012. Reversal of the coalition’s plans to increase the child element of the child tax credit by £110 is saving £1 billion in 2012-13. Increasing the hours that couples with children are required to work to receive the working tax credit from 16 to 24 hours saves £550 in 2012-13. Abolition of the 50-plus element of the working tax credit—payment of up to £2,030 to those over 50 starting working after a period of unemployment—saves the Government £45 million. Reversing the previous Government’s plans to introduce a supplement in the child tax credit for children aged one and two is saving £180 million in 2012-13, and freezing the value of the £1,950 couple and lone-parent elements of the working tax credit saves £265 million.
Of course, that list does not include all the changes made in 2011, which also have an impact. Those changes include the reduction in the support for child care costs through the working tax credit; reducing the amount of help given to parents by 80% to 90%; the £180 above-inflation increase in the child element of the tax credit; an ongoing three-year freeze in the basic 30-hour elements of the working tax credit; faster withdrawal of the tax credits as income rises; and the removal of the £545 baby element of child tax credit. I could go on and on; the list is endless.

David Gauke: Does the hon. Gentleman oppose every one of those cuts?

Owen Smith: I could not see what was coming there at all. That was not well telegraphed from 40 yards out. That is not what I said. The Minister should not expect me to lay out spending commitments in Committee three years before a Budget, or to comment on individual choices made by the Government, save to point out the reality of the impact that they are having on individuals.

David Gauke: Will the hon. Gentleman give way?

Owen Smith: I will, but please do not ask me again to enumerate which aspects of the changes I will reverse, because I will not do that, and asking would be a waste of the Committee’s time.

David Gauke: I will specifically not ask the hon. Gentleman which of those changes he will reverse, although, as he mentioned the subject, it would be a good question. Does he oppose those changes now?

Owen Smith: We are not debating those changes now. We are debating clause 3. You have already made those changes—not you, of course, Mr Bone, but the Government. I am pointing out to the Minister the endless list of changes—I can read more if he would like—that more than offset the derisory amount that some families are getting through the much-trumpeted personal allowance changes. That is the net reality for families out there. They are getting turned over by the Government and they need to hear this from us.

Graeme Morrice: In response to the Minister’s earlier point, it seems the kettle is calling the pot black. From my recollection, promises and commitments were made by the Conservative and Liberal Democrat parties prior to the general election, not least the promise not to increase VAT. The Liberal Democrats made that specific commitment through their party leader. Yet in government they have done the opposite of what they said in opposition. Is that not just a case of crass hypocrisy?

Owen Smith: It is certainly hard to understand. Far be it from me to use such a juicy phrase, Mr Bone.

Jacob Rees-Mogg: On a point of order, Mr Bone. The hon. Member for Livingston accused hon. Members of hypocrisy; I am concerned about whether that should be allowed to stand.

Peter Bone: That is a legitimate point of order. As I heard it, the hon. Member for Livingston was accusing the party, not any individual Member, of hypocrisy.

Owen Smith: I would happily stand by what I had said, if I had accused the party of that, just as I happily questioned the consistency of the party, in the person of the Chancellor, earlier today at Treasury Question Time.

Mark Garnier: Which party?

Owen Smith: It is awfully hard to tell the difference these days. Keep tossing them up and I will keep playing for the boundary.

Peter Bone: Order. I say gently to the shadow Minister that he did make a fair point, but we do not want to get into debating each and every one of these individuals. It would be rather nice to get back to the clause.

Owen Smith: I would be delighted to, Mr Bone. I go back to the nub of the amendment, which asks the Government to compare and contrast the impact of the personal allowance with the sum total of the changes that I went through a moment ago. Others have done that for us. Others outside this House have engaged in that sort of honest, straightforward, transparent comparison. One group that has done that is, once again, the Resolution Foundation. In its analysis, it compares the cumulative impact in 2013-14 on the household income groups I referred to earlier—the benefit-reliant, low to middle and higher groups—of the income tax and tax credit measures due to be implemented over the next few years. For clarity, that is not factoring in the VAT changes, the child benefit changes or lots of the things I mentioned earlier. It is simply taking the specific tax credit measures and juxtaposing them with the personal allowance changes.

Grahame Morris: I want to make a small point in response to the excellent ones my hon. Friend is making. We are not advocating anything revolutionary. We are simply advocating a measure and transparency by which to gauge the success or otherwise of the coalition’s policies. How could anybody object to such a proposal?

Owen Smith: Again, that is an excellent point excellently made. The Government are so proud of their record: the Chancellor once again today defended the innate fairness of the omnishambles Budget, and I do not suppose Ministers want to do anything other than defend it. So why not expose it to the full scrutiny and transparency that we would all wish to see employed in respect of all Government policies? I tell my hon. Friend the Member for Easington that I suspect I know the answer. I suspect they are not terribly keen to subject it to the rigorous scrutiny of the civil servants in the Treasury because the numbers are not very good. That is the long and the short of it. Those lower earners in the bottom three deciles—those benefit-reliant people within our economy—get £18 every two years. That is how much they benefit from the positive changes. Netted against that, they lose £150. So they are down £132 as a result of these changes.
People in the low to middle income group benefit to the tune of £200 on those changes according to the Resolution Foundation, but they lose out to the tune of £266. So they are down £66. Remember these figures are just in respect of personal allowance versus the basic tax credit changes. At the top end of the income distribution the change is netted out; it is £26 benefit and £27 loss overall.

Charlie Elphicke: I thank the hon. Gentleman for being so generous in giving way once again. He talks about the personal allowance changes and about the tax credit changes, but it seems to me that it should be looked at across the board and one should also take into account the universal credit changes. The IFS report is quite clear that as a result of the changes taken by April 2014 the bottom two deciles are much better off than the other deciles, taking into account the changes made under the coalition. Over the longer term, as reforms are made, we are looking after the least well-off according to the IFS review.

Owen Smith: I have the IFS report here with me. I am not sure that I will be able to find the right page.

Charlie Elphicke: It is on the second-last page.

Owen Smith: There we go. It reads:
“Impact of changes taking effect by April 2014”.
Households with children will lose £1,781 according to the IFS. Pensioner households will lose £316. Working age households without children will lose out to the tune of £751. The hon. Gentleman is absolutely right that if one factors in the universal credit, the numbers get marginally better, but the losses are still £1,411, £315 and £646. I do not think those numbers do terribly well, and that is taking into account the notion that the universal credit will be successfully implemented by the Government—I think the jury is well and truly out on that.

Charlie Elphicke: The hon. Gentleman was looking at the last slide. The slide on the preceding page shows that the two least well-off deciles are relatively better off. We all know that there has to be austerity and there has to be a fiscal tightening because of the chaotic shambles of the nation’s finances left by the former Prime Minister and the disaster that we have had, but leaving that aside, if one looks at where the most challenging things are falling, the least well-off are protected under the Budget policy up till April 2014 according to the IFS figures.

Owen Smith: I will not labour this too much but I will be very specific: the slide to which the hon. Gentleman referred showing the impact of changes taking effect by April 2014 says that people in the lowest income brackets—these are households with children—on the measures announced solely in the 2012 Budget, will be better off to the tune of 0.7%. But that is because it does not take into account any of the other impacts that I have been talking about. The whole point of my amendment is that the Government should take those other things into account, because if they do, the benefit is not a 0.7% increase for households with children, it is a 4.7% loss—£1,781 versus £261. I could not be clearer and the IFS could not be clearer. I cannot imagine that the hon. Member for Dover wants to suggest that families will benefit overall as a result of the changes made by the Government. If he were to do so, he would be, to borrow a phrase from the Chancellor, out on a limb.
I could go on and regale the Committee with many more examples of individual impacts. Perhaps I will. [Interruption.] You tempted me. I will conclude shortly, but before I do I will try, as my hon. Friend the Member for Bassetlaw did earlier, to draw us back to the human experience and the real impact of the numbers that, when reeled off in this place, sound terribly inhuman and cold, but they have a real impact on people.
The TUC did an interesting piece of work. Government Members will no doubt shrug and laugh and say, “TUC, what a bunch of”—[Interruption.] I am not sure that I heard the word “crooks” from a sedentary position. I cannot imagine that I did. I am sure that hon. Members will take seriously the work done by the economists at the TUC, and the work done using the tax credit calculator. If any hon. Member wishes to stand up and contest the figures at any point, please feel free to do so.
The economists at the TUC calculate that a family with a stay-at-home mother, a father working part time on £19,000 a year, a 12-month-old child and a four-year-old will gain £191 from the changes to personal allowances by April 2013. However, they will lose out by £4,500—24 times as much—from the tax credit changes introduced by the Government. A two-earner family with a combined income of £40,000, two children and child care costs of £300 a week, will gain the maximum possible amount from the personal allowance increase—£381. They will still lose out six times as much—£2,312—from the changes made to tax credits.
It is not just the TUC that has made such calculations. The Low Incomes Tax Reform Group has made similar calculations. A lone parent earning £10,000 a year, working 30 hours a week and paying £150 in child care—a perfectly plausible example of people I meet in my constituency every week, many of whom are feeling the squeeze under this Government—will pay £200 less in tax in 2011-12 than in 2010-11 as a result of the changes, owing to the £1,000 increase in personal allowance. She also pays approximately £140 less in national insurance contributions. However, the reduction in her housing benefit and council tax benefit that flows from the increase in her net income means that she will see only 15% of the increase. My hon. Friend the Member for Easington made that point while debating a previous clause. Not only has the net effect not been considered by the Government, neither has the impact of the changes on the recipients of benefits.

Grahame Morris: My hon. Friend has been very generous in giving way, and I am grateful. He is making a compelling argument about how we should assess the impact of the Budget. Will he confirm that, in addition to the changes as a result of alterations to tax credits, the increase in VAT is costing a family on average £450 a year?

Owen Smith: It is, of course, and that cost of £450 does not go away—it is ongoing. A further impact of the increase in VAT, as the Bank of England Governor conceded last year, is that it helps inflation become sticky. One of the down sides of last week’s economic figures—the upside being the unemployment figures—was the news that inflation, contrary to expectations, remains horribly sticky and may stay, according to Paul Tucker of the Bank of England, north of 3% throughout the whole year. VAT is hitting people. Inflation is hitting people. The tax credit changes introduced by the Government are hitting ordinary workers. Those are all things that the Government should be deeply concerned about.

Stephen Williams: Will the hon. Gentleman give way?

Owen Smith: No, I about to sit down.
Those are all reasons why the Government should accept the amendment.

John Pugh: It is an unalloyed pleasure to serve under your chairmanship, Mr Bone. May I cut new ground by speaking directly about the amendment? The amendment calls, somewhat innocuously, for a review—in fact, there are many amendments calling for a plethora of reviews on such matters as the basic rate, corporate tax, corporation tax and so on, all to be conducted by the Chancellor. So far, we have largely speculated, at enormous length, on the possible results of such a review. People might ask, “Why not? We would hope that the Chancellor would carry out this kind of work anyway—after all, it is in his interest to do so to gauge the Budget’s social and political effects”, or they might say that the suggestion is partly redundant.
The amendments call for the Chancellor to present public reports and place them in the Library, but is he the right person to do that? He has a position to defend, he makes various claims throughout the Budget process, and he has produced his own impact assessments and declared them to the press and the public. Whether he would be the most objective source to carry out the work that the Opposition require is questionable. Undoubtedly, he would want to include in such work various offsetting aspects of Government policy that the Opposition may not want to be directly included but which may be relevant, either with regard to families or to businesses. No formula is likely to satisfy critics or do the kind of work required by the hon. Member for Pontypridd.
A better review could or should be carried out by an independent body. The Government have a clear bias in favour of using the Office for Budget Responsibility and its skills, and we might consider using the Institute for Fiscal Studies, too. Personally, I favour the Treasury Committee to conduct the work that the hon. Gentleman requires. In fact, I have held discussions with the hon. Member for Chichester (Mr Tyrie) about extending his Committee’s work to include a retrospective assessment of tax measures. It is a busy Committee, so it may not find time to do such work. I am sure that the hon. Member for Chichester could find all the time in the world to do it, but he might have to carry all his Committee members with him.
The Chancellor does sometimes get things wrong. He has put right an error about video games that was made in a previous Budget. The assumption was that removing the tax relief that the Labour party gave to the video games industry would not have a detrimental effect on business. The Chancellor discovered that it did have such an effect, so he has changed the provision. I can see much merit in serious examination, post hoc, of what taxation policies do, going back a number of years.

Sheila Gilmore: Does the hon. Gentleman agree that it might have been desirable if, when considering errors, the Chancellor had listened to the many people who said that taking working tax credit away from couples who were not working up to 24 hours a week would be detrimental, because it flew in the face of Government policy? Despite being asked about the matter on numerous occasions in the lead-up to the Budget, he failed to listen.

John Pugh: It is always good, particularly in a coalition, to have evidence-led policy. The effects of implementing tax policy are sometimes not apparent until many years after the event, when everyone has forgotten the particular Budget that initiated the policy that created either the problem or the benefit. However, I genuinely believe that we do two things especially badly in Parliament: first, we do not carry out enough retrospective examination of tax-raising over a period of time; and secondly, we do not carry out enough examination of departmental budgets in real time. Both of those are rational suggestions that an Opposition or a Government could make. The Treasury Committee “does the Budget” immediately after the event and rarely revisits that territory later on. On public expenditure, the Public Accounts Committee looks at things purely in the past, not in the present.

Robert Syms: The hon. Gentleman makes a good point. It seems bizarre to me that on estimates day, we do not talk about the money, the changes and millions of pounds; we debate sports centres, farming in Wales or whatever. We should debate money much more than we do.

John Pugh: Some very well worked through suggestions have been put to the Chancellor to improve estimates day and Parliament’s scrutiny of finance. We should scrutinise better, and we should scrutinise effective taxation. I just think that setting up the Chancellor as the chief scrutineer shows a touching and surprising faith in him on the part of the Opposition.

Sheila Gilmore: It is a pleasure, Mr Bone, to serve—[ Interruption. ]

Peter Bone: Order. If there is more than one Division, we will resume 12 minutes after the last Division starts.

Sitting suspended for a Division in the House.

On resuming—

Sheila Gilmore: I wish to speak to amendment 10. In looking at the effect of any change, it is important that we look at the wider picture. That has been particularly important in the context of the increase to the threshold, because a lot has been made of it. Many people have said that it is so important that we should almost not question or say anything about it. It is not so much that the rise is in any sense a bad thing, but that the claims being made for it are inflated.

Richard Harrington: I apologise for interrupting the hon. Lady mid-sentence, but I am intrigued. She says that the rise is not a bad thing, but is it a good thing? Is she in favour of it?

Sheila Gilmore: It is good, provided that its cost does not have an over-marked impact on other policies and vulnerable people. The problem with the rise is that it is very expensive to deliver, as it always has been for any Government. It is a bit like rises in the state pension that go to large numbers of people; I think successive Governments have struggled with those. All Governments have to question themselves about the balance. It is an expensive change, and at a time when we have to be careful with money and, as we are always being told, there is no money for all sorts of things that people would like to do, is this the best way to help those at the bottom end of the income scale?
When we increase the income tax threshold, we take some people out of tax altogether, but once that has been done in any given year, they do not benefit from it in subsequent years. Those who continue to benefit every year that it happens are those who are far enough above the threshold. As has been said, it has a more generous impact on some two-earner households, for example, than it would on certain single-earner households.
The cost of the increase has been borne in many different ways. This is one of them, arguably, at least: other changes that are being made to create savings, such as the changes in tax credits, are being made at the same time as this increase in the tax threshold, so some individuals and households are really not gaining at all. If a decision had not been taken to proceed quite so speedily with the rise in the income tax threshold, perhaps some of the things that have been taken away from relatively poor households need not have been taken away, or not in the same way.
People who are on the cusp, or at the point where it might be said, “Yes, now you’re out of tax”, will find that the gain is even less than the apparent gain of £42 a year referred to earlier, if one assumes that in normal circumstances, the threshold will have risen in line with inflation. That is because for people at that margin, the workings of other benefits, which a lot of them will be entitled to if they are at that level of income, will wipe out much—if not all—of the £42 gain, due to the way that benefits such as housing benefit and council tax benefit, for example, are calculated. They are calculated on net income, not gross income. If someone’s net income rises, the amount of benefit that they receive falls, so they are given something with one hand and it is taken away with the other. People in those households will not be saying, “This is wonderful! I have got so much more money in my pocket to spend.” They will feel pretty indifferent about the outcome of the change.
That is without looking at the other issues to do with tax credits. There is a philosophical difference between the parties. There certainly is between ourselves and the Liberals. I am not entirely sure where the Conservatives have been on tax credit, but I know that the Liberals have never particularly liked tax credits. We will probably continue to agree to differ on tax credits, but tax credits are a very targeted way of helping people on lower incomes, and they were also introduced to assist people with the problem of how to make work pay. It frequently suits the coalition Government to say that that is a new problem that they discovered, that Labour ignored it, and that we do not want to make work pay, but as I recall, all the debates and discussions about tax credits were very much about that problem. They were about asking, “How do we do this?”
There is an understanding that unless benefits are cut to a bare level—a level that would not be considered humane by most people—for some people in low-paid work, particularly if they have children, with the costs that that involves, and if they have housing costs to meet, it can be difficult to make work pay. Hence the need for tax credits targeted on those who need them most.
As has been pointed out, under this Government, by degrees, various aspects of tax credits have been taken away and taken away, and people are beginning to see a real difference. Let me talk about the most blatant example. I still find it hard to accept that the Government were prepared to bend and make concessions to those who complained about the effect of taking child benefit away from higher rate taxpayers. I have to say that it will prove extremely difficult to make that work. I am sorry; I slightly misrepresented that. The only concession that they were prepared to make in relation to working tax credit for couples working part-time was for someone who had carer’s allowance.

Owen Smith: Does my hon. Friend share my lack of understanding of the way that this Government have targeted families with children? Does she understand why the Government have chosen to overturn decades of agreement throughout the House that the additional cost of rearing children should be recognised by the tax system?

Sheila Gilmore: I am not sure whether the policy is fully thought out, or whether some things just happen along the way. My example about the working tax credit for couples, who are now required to find 24 hours of work to qualify, flies in the face of what the Government say they want to do. We will be told constantly, as those of us who served on the Welfare Reform Bill Committee will recall being told many times, about the merits of mini-jobs and how universal credit will make it possible to reward work at any level, no matter how small.

Cathy Jamieson: Does my hon. Friend agree that that is exemplified by the fact that a couple on the minimum wage with two children would be better off quitting their jobs if they cannot work at least 19 hours per week? That makes no sense whatever.

Sheila Gilmore: That is exactly the irony. I suspect that the savings from the measure will turn out to be somewhat less than would appear, which will be another problem when it comes to balancing budgets and having a fiscally neutral income—if that is what is desired. People can do two things in that situation. They can find the increased hours, if possible, although many have explained why they cannot. If they can, they will again become eligible for working tax credit, albeit at a lower level, because they will have more earnings by then. They will, however, get an element of working tax credit, so the saving—the amount taken away—will in part be reinstated. Therefore, the saving that the Treasury expects from the outcome will not be there.
Alternatively, as my hon. Friend suggested, if a couple decides in a sensible, planning kind of way that they would be better off simply giving up the job—after all, we do not know whether the job might have caused some difficulty with child care, or whether the changes were the last straw—the saving will not only be lost but go the other way, because the cost to the Treasury in that event would be greater. The only saving from the measure, ironically, is from those people who go on working their shorter hours and do not give up work, and they might turn out to be few in number if people work this through in their heads. It is a particularly strange measure.
We need to look at the impact, and we need to weigh up these things. However, that is not the only change. Working tax credit was not increased in line with inflation in the latest round of increases, although other benefits were.

Iain McKenzie: My hon. Friend is making a powerful argument and giving many reasons why the Government might be reluctant to measure the effectiveness of what they call their tax benefits for those on low pay. It has become evident that many bodies are willing to measure that, but not the Government.

Sheila Gilmore: My hon. Friend might well be right. Not to increase the working tax credit in line with inflation when benefits are being increased, however, makes people more likely to conclude that work is not as worth while as being on benefits. That may be considered to be a major problem. What message does it give to people who were previously almost berated, and told that they should be working and trying, if we keep the gap going? The tax credit was introduced to close it.

Stephen Williams: The hon. Lady talked about the philosophical differences between her party and mine. What insight can she offer us into the thought processes of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) when he doubled the tax on the lowest-paid in 2007?

Sheila Gilmore: I am not privy to the thought processes of my right hon. Friend, but it was conceded by him and by others that it was not a good thing to do. That was why a whole lot of subsequent changes had to be made. There is no question of us saying, now or then, that for those people who were badly affected—some clearly were—that change was not a bad choice. I was not a Member of Parliament at the time, but I well remember the debate. I remember many of us, as party members and party activists, feeling from very early on that that change was an error. Often one of the problems in politics is that we all find it difficult to say, “We have made a proposal here, and, on reflection, we should change it,” because all politicians are rather inclined to cry at the first sign of changes, “U-turn, U-turn, U-turn.” The media do it as well.

Stephen Williams: I thank the hon. Lady for her remarkable candour. It is to be welcomed by all parties when politicians are candid about the mistakes that we make. I have made them, too. How long does she think it took the right hon. Member for Kirkcaldy and Cowdenbeath—I do not think that he ever admitted that he had made a mistake—

Peter Bone: Order. This is so far from what we are discussing. You would get a red card if I was a referee.

Sheila Gilmore: Perhaps at this stage we should return to the issue of working tax credits. The other changes made that are relevant to the impacts that we would want to measure are to the amount that is allowable in relation to child care costs. Child care costs are, for many working families, the issue that makes work extremely difficult, and they often create a situation where work does not pay. That may include child care costs for young children, but it also includes costs for things such as after-school care, because school hours and working hours, even when someone is working part time, do not necessarily coincide.
The Government are very fond, whenever this comes up, of throwing the issue back by saying, “Ah, but we have increased free nursery care for deprived children aged between two and three.” I would not for one minute say that nursery education is not a good thing, but it is rarely the solution to child care problems. Some may remember those days, or still be going through those days. The part-time places in most nurseries in my city are for about two or two and a half hours. By the time the child has been dropped off—it is not normally welcomed to drop off the child a minute earlier than the nursery opens—and the parent has travelled from there to wherever they might have a job of work, they will not be able to do very much work before they have to turn around and come back to collect the child. In itself, free nursery care does not resolve all child care problems. It is a good thing, including for children, just as Sure Start was an excellent thing for children, and it is a pity that that has been reduced.

Seema Malhotra: We have clearly stated—it is indeed true—that the increase in the personal allowance has been outweighed by the cuts to tax credits. Perhaps up to 1 million people are affected by the changes brought in this year. There is also the VAT rise and higher petrol duty. According to independent experts—we have already discussed this—the changes coming into effect will leave a family with children worse off by £511 a year. Do we not need to keep returning to the point that it is vital to have a proper assessment of the collective impact of our policies on low and middle-income families, rather than misleadingly trumpeting that the rise in personal allowance will be a gain for all families when there is an overall net loss?

Peter Bone: Order. Interventions have to be short. The hon. Lady may catch my eye later if she wishes to make a speech.

Sheila Gilmore: I thank my hon. Friend the Member for Feltham and Heston for reminding us that this is about not just tax and benefits but the other things that increase the cost of living. The reduction in the coverage of child care costs is a serious issue for many working parents. The issues relating to universal credit, that panacea for all ills, have not fully bottomed out. We are not entirely sure how the coverage of child care costs will compare with what already exists, and how it will all work. It is one of those crunch things that will determine whether universal credit does what it was promised to do, which is that no one will be worse off working than not working. It is a bold promise and something that we all want to achieve, and indeed it is what the various tax credits that have been introduced are largely about.
As for the families who are striving to work, particularly those on lower incomes, many are working less than full-time hours. I am not just talking about those who are caught by this recent change in tax credit, but about people more widely. It is clear that many of the new jobs being created are part-time. I have many constituents who have not only part-time hours but these strange zero-hours contracts, in which they do not know from week to week and month to month what hours of work they will be offered. Such contracts do little to encourage people to work, particularly those who have child care responsibilities. They do not know where they stand, because they have to be in a position to make arrangements. It was also suggested in the Welfare Reform Bill that people could pay for child care by the hour. Anyone who has tried to run a nursery will know that the business would not be viable if people were allowed to opt in and out and use it for odd hours; it just does not work, and the nursery would fairly quickly collapse.
It is important that we look at the overall picture, and that we do not look at it in a one-dimensional way and pretend that we have solved so many of the problems, or that this is primarily a measure that will help the poorest working people, because that is not necessarily the case. All of those who are already outwith the tax threshold are not helped. Those who are at the margins because of the interrelationship between tax and benefits will see little, if any, result from the change, even in terms of the money in their pockets. Changes to tax credit have made a lot of working families worse off.
We must be honest with people about what we are striving to achieve. Benefiting the better-off taxpayers in the middle income brackets may be a good thing to do, but it is wrong to say that the rise in the tax threshold is simply about helping the poorest; it will help some of the poorest a very little bit, and help others slightly more. As I said at the beginning, it is an expensive change to introduce, and it has to be paid for in some other way. We must look at providing some cost-benefit analysis, and that is what this amendment seeks to do.

Ian Lavery: It is a pleasure to serve under your chairmanship, Mr Bone. I am not an accountant. I am not a financial whizz kid. I have not dealt with figures as a profession.

Robert Syms: You should be shadow Chancellor.

Ian Lavery: Does the hon. Gentleman want to intervene?

Robert Syms: No.

Ian Lavery: I do not need to be a whizz kid to know that the Budget shows clearly that we are not all in this together. The amendment simply seeks transparency and, as politicians, we should be supportive and transparent. That is what the public want, and they are correct to demand transparency in the decision-making process in Parliament. We need to be transparent and accountable, particularly when we are dealing with ordinary people’s lives, with families, elderly people and disabled children. What is wrong with being transparent? Why are we looking to run away from transparency? Whether positively or negatively affected, people have the right to see the results of our decision making. After all, they will have to pick up the pieces and deal with the consequences of what we work on.

Iain McKenzie: My hon. Friend has touched on some of the reasons for moving away from transparency. If we look at some figures that were recently revealed to my hon. Friend the Member for Kilmarnock and Loudoun, it seems that 212,000 households will suffer from the measure, and that means 500,000 children. If we take those figures to a constituency level—even to my constituency, which is not large—800 homes will suffer under the tax credits reduction.

Ian Lavery: I could not agree with my hon. Friend more.
The Opposition are simply asking the Chancellor of the Exchequer to review the overall impact on families of the policy compared with other measures that the Government are introducing and place a copy of the review in the Library of the House of Commons. The amendment calls on the Government to report on the overall impact that their policy will have on those who they claim will be better off as a result of the increase in the personal allowance. It is hardly Leninist-Marxist information. It is hardly revolutionary. It is called openness and transparency. According to many leading independent experts on such issues, the changes coming into effect this April will leave a family with children worse off by an average of £511 per year. That is on top of the VAT rise, which will cost a family an average of £450 per year.

Stephen Barclay: The hon. Gentleman’s speech is focusing on the importance of transparency. The National Audit Office is an independent body, and this week has produced its cross-Government review of transparency, in which it praises the Government for delivering 23 of their 25 transparency targets. In the spirit of focusing on transparency, will the hon. Gentleman endorse that progress?

Ian Lavery: Perhaps it could be 24 out of 26 if the Government side of the Committee supports the amendment. [ Interruption. ] Sorry, it could be an extra one on each. As I said, I am not particularly a whizz kid at figures, but I am sure that the Committee understands exactly what I mean. If it were 24 out of 26, it would be 25 out of 27. That is the point that I am making.
Why not be 100% transparent? That is my question. We need to be accountable. We need to be transparent to the people whom we represent. It is absolutely outrageous that we are spending so much time having to table amendments just to be accountable. The average of £511 per year and the VAT rise that will cost families £450 a year totally outweigh the increase in the personal allowance.

Stephen Williams: At last, a Labour MP has given way on that point. The fact that people are £450 worse off because of the increase in VAT is often repeated. VAT has gone up by 2.5% on standard-rated items, so someone would have to spend £18,000 on standard-rated, VATable goods to be worse off by £450. Can the hon. Gentleman name any of his constituents who go out every year and spend £18,000 on standard-rated goods such as cars, fridges and so on?

Ian Lavery: In my constituency of Wansbeck that would be difficult. The total that I mentioned before totally outweighs the increase in the personal allowance. Of course, most pensioners and people on low incomes will not be helped at all by this policy. The Government have given with one hand and taken away much more with the other. As I have previously stated, our amendment calls on the Government to provide a proper assessment of the policy’s impact on low and middle-income families, rather than deliberately heralding the measure as a financial panacea for the masses.

Graeme Morrice: My hon. Friend is making a passionate argument in support of the amendment, and he is articulating the need for transparency. Does he, like me, suspect that one of the reasons why Government Members are reluctant to support the amendment is that the Budget has simply failed the fairness test?

Ian Lavery: Of course the answer is yes. The Government have failed on fairness on all counts, and my opening remark was that we are definitely not all in this together.
Since my election, I have always thought that the House of Commons Library is an excellent source of reliable information. The Library has indicated that, from the rise in the personal allowance above normal indexation, basic rate taxpayers will gain just £42 a year, or 81p a week, which is about three quarters of a loaf of bread or a pint of milk a week. I say that in light of a Government Member’s taunt that the Chancellor and the Prime Minister are two posh boys who are totally out of touch with the rest of society. I do not have a single problem with posh people—despite my broad accent, I really do not—I am just not used to being surrounded by so many of them at any one time. [Laughter.] I quite enjoy their company. Some of them are quite nice people.
Overall, low and middle-income families will, of course, be a lot worse off as a result of the Government’s tax and benefit changes. As numerous speakers before me have explained, figures from the Institute for Fiscal Studies show that, on average, families with children will be £511 a year worse off this financial year as a result of Government decisions on tax, spending and pay. The TUC, that wonderful organisation that represents working people very well, has warned that by April next year some families could lose about 20 times more than they gain from tax changes. At the same time, this out-of-touch Government have given a £3 billion tax cut to those earning more than £150,000 a year. In doing so, they are asking millions to pay more so that millionaires can pay less. The overall financial measures inflicted on hard-working people must be taken in conjunction with all other financial issues.

Ian Mearns: It is a real pleasure to serve under your chairmanship, Mr Bone.
Will my hon. Friend reflect on his comments on the breaks for top rate taxpayers in the context of the significant imbalance in where those people reside across the country? Some 195,000 of those people live in the eastern and south-eastern regions and London, and only 5,000 live in the north-east of England. Are the Government trying to earmark a particular section of the electorate in the Budget?

Ian Lavery: My hon. Friend began by asking a question that set forth the answers, so I think that it would probably be prudent to move on.
Changes to the rules for working tax credit mean that 200,000 couples with children and in part-time work are set to lose around £4,000 a year unless they can significantly increase their working hours. That brings many associated problems which, looking at the time, I will not venture into. However, the change means that couples with children who earn less than about £17,700 will need to increase the number of hours they work from a minimum of 16 to 24 hours per week or they will lose all their working tax credit of £3,870 per year. The Government’s own figures reveal that 212,000 households could lose out. Those households include 470,000 children, which means that nearly 1 million people could be affected by the changes. We have discussed and rehearsed the message about VAT both this morning and this afternoon, and fuel duty has been mentioned as well.
In my concluding remarks, I wish to mention the reduction in the 50p rate of tax. HMRC’s review of the 50p top rate confirms that next year the Government will cut taxes for the richest earners by £3 billion. It is simply a tax give-away to 300,000 existing taxpayers who will gain an average of £10,000 per year. As a result of that tax cut, the Government have gambled that they will pull back £2.9 billion from people who currently avoid tax.

Richard Harrington: Can the hon. Gentleman tell the Committee why the previous Government—I am conscious that neither he nor I were MPs at that time—took 13 years to increase the top rate of tax from 40% to a higher rate? Why did they not do it before?

Ian Lavery: As the hon. Gentleman has said, neither he nor I were then Members of Parliament, and I would probably have held a different view from the Labour party at that point in time. We were talking about people being totally honest, and I am prepared to say that at that time I probably was not in line with what was being said. We were living in different times.
As I have said, the reduction in the top rate of tax confirms that the Government are cutting up to £3 billion, and that 300,000 existing taxpayers will save £10,000—that is a fortune to the 22.2 people who are looking for work for every single vacancy in my constituency of Wansbeck. It is an absolute fortune, yet the Government see fit to give that up. As I mentioned, this is a gamble to pull back £2.9 billion from tax avoidance, but why do we not go after that in any case? Why do we not go after those people who, for many years and through successive Governments, have avoided tax? Then we would not be in this position.
The Office for Budget Responsibility says that the results of the evaluation are “highly uncertain,” and the Institute for Fiscal Studies has stated:
“If the future of the 50p rate is to be determined on the basis of evidence…then the Budget 2012 will be too soon to form a robust judgement.”
I would dearly like to talk in detail about the tax cuts for the rich and the problems in constituencies such as mine in Wansbeck where hard-working families, as well as those unfortunately unable to gain employment, are suffering greatly. This amendment, if accepted, would allow them to judge for themselves. Transparency is important. It was once said that corruption is authority plus monopoly, minus transparency. Let us stop the general public levelling those criticisms at our Parliament. I urge all Committee members to support the amendment.

Julie Hilling: I am grateful for the opportunity to speak in this debate. It is interesting that the previous debate was about the squeezed middle. To steal an expression from my right hon. Friend the Leader of the Opposition, this clause is about the battered base.
Raising the personal allowance does not seem like a bad thing: it makes a good headline and it sounds good to people out there. However, it is not a bad thing only if the Government are not giving with one hand and taking away much more with the other. The Government are making a choice with the whole Budget about what they are targeting and where they are getting their money from, and they have chosen to get the money from that battered base and the squeezed middle.
Given all the things affecting people on lower incomes, such as the change in tax credits and higher fuel duty, as so many of my hon. Friends and even the IFS have said, families will be £511 worse off. Because of those changes since the general election families with children are now £1,335 worse off. Those who earn too little to pay tax do not benefit at all from the rise in the personal allowance, but they have been hit by all the other rises in a mean Budget.
The cost of living—fuel; utilities, including gas, water and electricity; and bus and train fares—is rising. We have not talked too much about the cost of getting to work and getting children to school and of people having any sort of entertainment in their life. Those people who do the weekly shopping know that, each week, they are paying just a bit more at the checkout for the things in their shopping basket. I do not know whether Government or Opposition Committee members have stood behind people in a queue, but often people have to negotiate with the checkout person which goods to put back on the shelfbecause they can no longer afford to buy all of them. I will not even touch on those people who have to rely on food banks and are out begging for food because they can no longer afford to feed their family.
The cuts in tax credits, in the health in pregnancy grant, and to local authority services affect people on low incomes far worse, because they are more dependent on local authority and voluntary and community sector services, including those services that are being destroyed and cut to the bone. They cannot pay any difference themselves.

John Mann: In the context of the research that the amendment would require, and my hon. Friend’s point about local authority cuts, is she aware that academy schools, including primary academies, are removing hot school dinners? Children who received free school meals or whose families relied on that hot food because, even though they were paid they were on a low income, will no longer receive those hot meals? Should that not be part of the reporting back under the amendment, so that we can get a comprehensive picture?

Julie Hilling: I thank my hon. Friend for his intervention, because although it may be drifting slightly from the amendment, it is true. He highlights another area where low-paid people will suffer under the cuts in our society. Those who are affluent, who can buy their way out of any situation, do not understand what is happening to some people. There are people in my constituency who I am desperately worried about, who will not have any food in their cupboard this weekend. They cannot go out and do the things that we can do, and that is the reality of the world out there for so many. We can sit here, talk and pontificate, but we need to think about those people.

Ian Swales: I have followed carefully the arguments from many of the hon. Lady’s colleagues, and my head is starting to spin from the number of interactions. The Government have been very transparent about their measures, but what the hon. Lady and her colleagues are talking about is the interaction between a huge number of measures impacting on a huge number of different family circumstances. How many cases would she like to see evaluated in the amendment?

Julie Hilling: What I would like to see is the Government looking at the effect of their policy on the poor and low-paid. That is what needs to be done. It is not enough to sit in this place and believe that everything out there is all right, because everything out there is deeply not all right. It is something that worries me hugely, and I am sure that it worries the majority of us sitting in this room.

Ian Mearns: The thing that strikes me, but does not seem to be readily accepted by Members on the Government Benches, is the fact that before the changes kick in, there are already significant signs of high levels of poverty among people in regions such as the north-east of England. It is so much so that only yesterday, regional news bulletins highlighted the number of food banks springing up in churches to give weekly food parcels to families, and that is before many of these significant changes kick in, which will make matters worse for families at the poorer end of society. I refer to words my hon. Friend used earlier—the “battered base”. Such people are the battered base of the economic chain and they really need support. There has to be a governmental assessment—a duty of care, if you like—to say what is actually happening to them.

Julie Hilling: My hon. Friend is absolutely right. I believe that there are Government Members who think that raising the threshold will do something for those people. What Opposition Members are saying is that it will not, because of all the other measures that the Government are taking. The Government are introducing the pasty tax—coming from Wigan, I ought to say “pie tax”—the granny tax, the caravan tax and the hairdressers tax as well as taxing beer, churches and fuel, which are all things that disproportionately affect ordinary people. It is about understanding that paying 20p more for your pie or whatever is significant to a household budget.
I want to tell the Committee about two of my constituents who have been in touch. In truth, it makes me sad that I cannot do anything to help them. Nicola is on maternity leave at the moment, and thus unable to increase her hours above 16, even if her employer allowed her to do so. Her partner has done everything to get work; he has retrained and been on courses, but he cannot get work. She has just lost her tax credit. A woman who has just had a baby has lost her tax credit because of the Government’s actions. She asked me, “How am I supposed to feed my children?” I cannot answer that question.
Lindsey is the mother of a two-year-old. She works 18 hours a week as a legal secretary and earns about £11,500 a year. She said that her child care costs £400 a month and her rent is about £450 a month, so that is effectively her salary gone. She used to receive about £800 a month in tax credits—

Sam Gyimah: Will the hon. Lady give way?

Julie Hilling: Let me finish telling Lindsey’s story, then I will give way with pleasure to the hon. Gentleman.
Her tax credits are now reduced to £200 a month. She says that her only option is to give up work. She also says:
“I am absolutely baffled as to what this pathetic Government intend for me to survive on. It’s utterly ridiculous.”
Those two people demonstrate how the increase in the personal allowance will not help, and that other decisions completely outweigh any advantage. They will on average be worse off by £511.

Sam Gyimah: I thank the hon. Lady for her passionate speech. When she talks to Lindsey and her constituents—times are tough and she is right to point that out—in the interests of being honest and direct with them, she should also point out that the previous Government left this country in a perilous economic situation, which is why her constituents are going through what they are going through.

Julie Hilling: I am pleased that the hon. Gentleman raised that. I am sick of hearing it—[Hon. Members: “It is true.”] Let me just explain. I do not know whether Government Members who say that that is true have missed the fact completely that there was a global economic crash caused by bankers, not by the Government in this country. It was a crash that started—

Peter Bone: Order. Someone on the Government side is very naughty, because we are getting away from the subject. While the hon. Lady was quite right to have a go back, we ought to return to the amendment.

Julie Hilling: I am disappointed, Mr Bone, that I cannot complete that. Perhaps I can finish that speech when we debate the Bill on Third Reading and explain exactly why the blame should not rest with the Labour Government. This Government are making choices that disproportionately affect the poor and low-paid in this country.

Charlie Elphicke: Yes, we have made a choice that impacts on families, but it impacts on all households in this country in relation to VAT. The VAT rise for the poorest in this country will be about £25 a year, but for the richest, it will be four times that amount, at £94 a year. The distribution of VAT as a percentage of all expenditure is pretty flat across all households, according to the Government’s ONS report, “The effect of tax and benefits on household income, 2009-10”, which is the latest available.

Julie Hilling: The hon. Gentleman does not seem to grasp the idea that if someone is poor or low-paid, they do not save their money; they do not save up for their Ferrari, and most people do not even save up for their two weeks at Butlins. They have to spend the vast majority of their income every week, and the percentage of incomes spent on VAT by the low-paid is much higher than that by the high-paid. I totally disagree with the hon. Gentleman.
 Charlie Elphicke  rose—

Julie Hilling: I will give the hon. Gentleman one more chance, but I think we might simply disagree.

Charlie Elphicke: With respect to the hon. Lady, if one looks across most of the income groups, the percentage is broadly between 6.8% and 7%. As a percentage of all expenditure, it is almost pretty flat. It hits everyone, but it hits everyone pretty equally.

Julie Hilling: We have a disagreement.

Iain McKenzie: I bring the debate back to the point that we are debating, which is transparency. My hon. Friend reminded us of the choices made by this Government. I confess that at the start of the debate, I was a bit confused as to why this Government would not wish to be transparent if they had made the right choices on tax credits and other issues. As the debate progressed, it became evident why they do not wish to be transparent. It is not the battered base, but the well battered base that we are seeing.

Julie Hilling: That concerns another set of decisions made by, I accept, a different Department. I will resist the temptation to list all of them, but one of the things that affect particularly low-paid people in work is housing benefit. Cuts in housing benefit will affect people on low wages. The economy is stagnating. The Government have talked about people getting people to pay higher rates because of wage increases and so on, but pay rises, particularly in the public sector, for low-paid people are definitely not keeping pace with inflation.
The headline about increasing the personal allowance hides the multiple attacks on ordinary people. The choice was to give the rich a 5% tax cut in the hope that they would be honourable and pay their taxes. In fact, 70% of high earners paid the 50% tax rate, and of the 10,000 people who declared an income of £1 million to £5 million 1,000 paid less than 30%, 200 paid less than 10% to 20%, and 300 paid less than 10%. Ironically, the position gets worse the more people earn. Those with an income of more than £5 million are better at avoiding taxes than those who are honourable lower down the scale.
Should we not concentrate on getting those who can pay and who should pay to pay their share, rather than cutting their taxes to make them pay? We do not cut the tax rate for the poor to give them an incentive to pay, but we tell the rich that we will cut their tax rate as an incentive to pay. That makes no sense.
If the Government believe that the Budget is fair, that raising the personal allowance will bring benefits, and if they think our arguments are wrong, they have no reason to reject our amendment, and no reason not to review the impact. If they reject the amendment, the only conclusion can be that they know that the poor and the low paid will be worse off under the Budget.

Ordered, That the debate be now adjourned.—(Greg Hands.)

Adjourned till Thursday 26 April at Nine o’clock.